MESSAGE TO SHAREHOLDERS
Dear Shareholders,
During the second quarter of 2001, we witnessed the constant progression of our
scientific, clinical and corporate activities, which reflects our dedication to
our shareholders in making AEterna one of the first companies in the world to
bring an angiogenesis inhibitor to market.
Our subsidiary, Atrium Biotechnologies Inc., enjoyed a landmark quarter by
positioning itself as the largest Canadian company specializing in the
development and distribution of high-end value-added products and active
ingredients in cosmetics, nutrition, pharmaceuticals and fine chemicals by
acquiring the French company, Unipex.
OVERVIEW OF SECOND QUARTER ACTIVITIES:
CLINICAL DATA
PROSTATE CANCER
Results from a Phase I/II clinical study in patients suffering from
metastatic refractory prostate cancer were presented at the Annual Meeting
of the Canadian Urological Association. The study corroborates results from
prior Phase I/II clinical trials which demonstrated Neovastat's safety
profile and dose-related activity. Results of the study showed no
dose-limiting toxicity, excellent patient compliance while improved
conditions or disease stabilization were noted in patients as indicated by
Prostate Specific Antigen (PSA) levels.
PATIENT RECRUITMENT
Patient recruitment in the Phase III trial in renal cell carcinoma has
surpassed the halfway point. Led by an international team of oncology
experts, the trial, which involves 280 patients, is being conducted at some
50 investigative centres in Canada, the U.S., and Europe.
Patient recruitment for the pivotal Phase II trial on progressive multiple
myeloma continues in some 35 investigative centres in Canada, the U.S., and
Europe. The study is progressing according to schedule, and aims at
evaluating the efficacy of Neovastat as a monotherapy treatment for some
120 patients who do not respond to standard therapies.
SCIENTIFIC DATA
NEW MECHANISM OF ACTION
AEterna presented new data showing that Neovastat is able to increase the
level of angiostatin in mice with implanted human glioblastoma, a form of
brain cancer. Data on this additional mechanism of action of Neovastat were
presented in May at the Annual Meeting of the American Society of Clinical
Oncology (ASCO).
NEW PATENT
AEterna discovered potent antiangiogenic activity in a class of molecules
isolated from Neovastat capable of inhibiting the proliferation of
endothelial cells. Following this discovery, the Company filed a patent
application and broadened its intellectual property portfolio to 12
patents, 6 of which have already been approved by the United States Patent
and Trademark Office.
CORPORATE AFFAIRS
ACQUISITION
In early July 2001, Atrium Biotechnologies Inc. acquired Unipex, a French
company specializing in value-added services of importation, in supporting
innovation, and in distributing raw materials and high-end brand-name
additives for multinational corporations such as Bristol Myers-Squibb,
Aventis, L'Oreal, Nestle, Danone and Kodak. The transaction, valued at some
$20 million, was financed from Atrium's cash surplus without any dilution.
Atrium therefore acquires 70% of the Unipex shares while senior Unipex
management retains control of the remaining 30%. Atrium's annual
consolidated sales should exceed $70 million for the upcoming fiscal year.
FINANCIAL RESULTS
Sales for Atrium Biotechnologies Inc. increased by 32% during this second
quarter, reaching $2.7 million compared to $2 million for the same period last
year. This increase is mainly due to sales of value-added nutritional products,
which more than doubled on the Asian market as well as revenues generated by
Atrium Biotech USA Inc., a subsidiary of Atrium. Established in October 2000,
Atrium Biotech USA markets a line of nutrition supplement products, primarily in
the United States.
AEterna's Research and Development investments reached $6.7 million in
comparison to $4.9 million during the same quarter of 2000. This reflects the
company's increased efforts in the development of its lead product, Neovastat,
for current pivotal Phase III clinical trials in lung and kidney cancer and for
the current pivotal Phase II trial in multiple myeloma.
During the second quarter, the Company registered net earnings of $7.5 million,
or $0.25 per share, compared to a net loss of $1.7 million or $0.06 per share
for the quarter ended June 30, 2000. Net earnings include a gain on dilution of
$10.2 million which was posted following an amendment to Atrium Biotechnologies
Inc. Shareholders' Agreement, in May 2001.
AEterna maintains a solid financial position with more than $60 million in cash
and short-term investments as of June 30, 2001. Furthermore, the Company has
access to $15 million through the Technology Partnerships Canada program and has
a $5 million sponsorship from the U.S. National Cancer Institute for its pivotal
Phase III clinical trial in non-small cell lung cancer.
OUTLOOK
During the next six months, our strategy will revolve mainly around the two
following items: on the clinical side, all efforts will be concentrated on
completing patient recruitment for our trials in kidney cancer and multiple
myeloma. On the corporate side, we will pursue discussions with pharmaceutical
companies in order to finalize our strategic alliances for the worldwide
distribution and commercialization of Neovastat.
On a longer term basis, the acquisition of a company or of a new technology to
broaden our product pipeline continues to be a main objective of our growth
strategy.
Dr. Eric Dupont, PhD
Chairman of the Board,
President and Chief Executive Officer
August 6, 2001
This report contains forward-looking statements, which are made pursuant to the
safe harbor provisions of the U.S. Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which could cause the Company's actual results to differ materially from those
in the forward-looking statements. Such risks and uncertainties include, among
others, the availability of funds and resources to pursue R&D projects, the
successful and timely completion of clinical studies, the ability of the Company
to take advantage of the business opportunities in the pharmaceutical industry,
uncertainties related to the regulatory process and general changes in economic
conditions. Investors should consult the Company's ongoing quarterly and annual
filings with the Canadian and U.S. securities commissions for additional
information on risks and uncertainties relating to the forward-looking
statements. Investors are cautioned not to rely on these forward-looking
statements. The Company does not undertake to update these forward-looking
statements.
AETERNA LABORATORIES INC.
CONSOLIDATED BALANCE SHEETS
(expressed in Canadian dollars)
AS AT AS AT
JUNE 30, DECEMBER 31,
2001 2000
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(UNAUDITED) (RESTATED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 24,708,830 $ 7,260,582
Short-term investments 35,757,705 61,388,205
Accounts receivable 6,826,891 4,842,845
Research and development tax credits recoverable 1,951,892 1,092,000
Inventory 2,777,612 2,484,139
Prepaid expenses 1,102,405 588,442
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73,125,335 77,656,213
CAPITAL ASSETS 14,628,661 14,928,146
OTHER ASSETS 2,975,708 7,347,884
FUTURE INCOME TAX ASSETS 855,537 650,000
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$ 91,585,241 $100,582,243
====================================================================================================
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 5,957,389 $ 5,860,960
Income taxes 45,873 650,000
Current portion of long-term debt 95,000 313,953
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6,098,262 6,824,913
LONG-TERM DEBT 4,753,500 4,753,500
REDEEMABLE COMMON SHARES OF THE SUBSIDIARY (notes 2 and 3) - 24,609,547
NON-CONTROLLING INTEREST (note 3) 10,835,162 -
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21,686,924 36,187,960
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SHAREHOLDERS' EQUITY
SHARE CAPITAL 81,215,845 80,008,032
DEFICIT (11,317,528) (15,613,749)
----------------------------------------------------------------------------------------------------
69,898,317 64,394,283
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$ 91,585,241 $100,582,243
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SUBSEQUENT EVENT (NOTE 4)
SEE ACCOMPANYING NOTES
AETERNA LABORATORIES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE PERIODS ENDED JUNE 30, 2001 AND 2000
(expressed in Canadian dollars)
QUARTERS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
UNAUDITED 2001 2000 2001 2000
--------------------------------------------------------------------------------------------------------------------------------
(RESTATED) (RESTATED)
REVENUES $ 2,668,278 $ 2,022,619 $ 5,434,903 $ 4,037,672
--------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of goods sold 411,613 221,837 855,266 518,928
Selling and administrative 861,010 496,663 1,694,658 952,907
Research and development 6,675,681 4,857,974 13,889,899 10,333,232
Research and development tax credits and grants (2,528,560) (1,508,200) (4,570,560) (3,146,683)
Depreciation and amortization
Capital assets 305,897 288,101 597,713 569,547
Other assets 80,717 38,261 164,368 76,124
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5,806,358 4,394,636 12,631,344 9,304,055
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OPERATING LOSS (3,138,080) (2,372,017) (7,196,441) (5,266,383)
INTEREST INCOME 980,562 723,407 2,056,161 1,469,816
INTEREST EXPENSE (174,733) (11,737) (436,833) (20,637)
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LOSS BEFORE THE FOLLOWING (2,332,251) (1,660,347) (5,577,113) (3,817,204)
GAIN ON DILUTION (note 3) 10,223,567 - 10,223,567 -
NON-CONTROLLING INTEREST (350,233) - (350,233) -
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NET EARNINGS (LOSS) FOR THE PERIOD $ 7,541,083 $(1,660,347) $ 4,296,221 $(3,817,204)
================================================================================================================================
NET EARNINGS (LOSS) PER SHARE
Basic $ 0.25 $ (0.06) $ 0.14 $ (0.13)
================================================================================================================================
Fully diluted $ 0.24 $ (0.06) $ 0.14 $ (0.13)
================================================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 30,192,678 28,970,502
================================================================================================================================
Fully diluted 31,411,346 31,020,604
================================================================================================================================
CONSOLIDATED STATEMENTS OF DEFICIT
FOR THE PERIODS ENDED JUNE 30, 2001 AND 2000
(expressed in Canadian dollars)
SIX MONTHS ENDED JUNE 30,
UNAUDITED 2001 2000
--------------------------------------------------------------------------------------------------------------------------------
(RESTATED)
BALANCE - BEGINNING OF PERIOD $(15,613,749) $(5,955,956)
Net earnings (loss) for the period 4,296,221 (3,817,204)
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BALANCE - END OF PERIOD $(11,317,528) $(9,773,160)
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SEE ACCOMPANYING NOTES
AETERNA LABORATORIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 30, 2001 AND 2000
(expressed in Canadian dollars)
QUARTERS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
UNAUDITED 2001 2000 2001 2000
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(RESTATED) (RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) for the period $ 7,541,083 $ (1,660,347) $ 4,296,221 $ (3,817,204)
Items not affecting cash
Depreciation and amortization 386,614 326,362 762,081 645,671
Interest expense 174,733 11,737 436,833 20,637
Gain on dilution (10,223,567) - (10,223,567) -
Non-controlling interest 350,233 - 350,233 -
Future income taxes (138,162) - (205,537) -
Change in non-cash operating working capital items
Accounts receivable 60,659 (522,219) (1,984,046) (1,791,053)
Research and development tax
credits recoverable (581,892) (325,963) (859,892) (588,406)
Inventory (223,758) 74,924 (293,473) (320,139)
Prepaid expenses 46,431 (173,202) (513,963) (422,350)
Accounts payable and accrued liabilities 457,293 (72,524) 96,429 1,622,301
Income taxes (71,127) - (604,127) -
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(2,221,460) (2,341,232) (8,742,808) (4,650,543)
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CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of share capital , net of related expenses 768,581 13,256,216 1,207,813 17,405,320
Increase (payments) of long-term debt (96,000) 95,186 (218,953) 95,186
Redeemable common shares of the subsidiary - - - 10,000,000
Deferred interest expense paid in cash - - - (235,721)
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672,581 13,351,402 988,860 27,264,785
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CASH FLOWS FROM INVESTING ACTIVITIES
Change in short-term investments 17,841,802 5,663,671 25,630,500 4,756,015
Purchase of capital assets (178,256) (191,509) (298,228) (401,321)
Additions to other assets (19,064) (39,189) (130,076) (70,315)
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17,644,482 5,432,973 25,202,196 4,284,379
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NET CHANGE IN CASH AND CASH EQUIVALENTS 16,095,603 16,443,143 17,448,248 26,898,621
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 8,613,227 16,481,211 7,260,582 6,025,733
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CASH AND CASH EQUIVALENTS - END OF PERIOD $ 24,708,830 $32,924,354 $ 24,708,830 $ 32,924,354
=================================================================================================================================
ADDITIONAL INFORMATION
Interest paid - - - -
=================================================================================================================================
Income taxes paid $ 122,125 $ - $ 722,500 $ -
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SEE ACCOMPANYING NOTES
AETERNA LABORATORIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED JUNE 30, 2001 AND 2000
(expressed in Canadian dollars)
UNAUDITED
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1 BASIS OF PRESENTATION
These unaudited quarterly financial statements have been prepared by the Company
in accordance with Canadian generally accepted accounting principles for
quarterly financial information and reflect, in the opinion of management, all
adjustments necessary to present fairly the financial position, results of
operations and cash flows as at June 30, 2001, and for all periods presented.
The accounting policies and methods of computation adopted in these financial
statements are the same as those used in the preparation of the Company's most
recent annual consolidated financial statements. All disclosures required for
annual financial statements have not been included in these financial
statements. These consolidated financial statements should be read in
conjunction with the Company's most recent annual consolidated financial
statements. The results of operations for the six-month period ended June 30,
2001, are not necessarily indicative of the results for the full year.
2 RESTATEMENTS
The Company has restated its financial statements to reflect a change in the
method of accounting for the issuance of redeemable common shares by its
subsidiary, Atrium Biotechnologies Inc. (Atrium), to its minority shareholders.
The financial statements have been restated to eliminate the recognition of a
minority interest and the previously recognized dilution gain recorded on the
issuance of the subsidiary's redeemable common shares. The redeemable common
shares of the subsidiary are classified as a liability in accordance with the
substance of the shareholders' agreement and the definition of a financial
liability.
3 AMENDMENT OF ATRIUM SHAREHOLDERS' AGREEMENT
In May 2001, Atrium and all its shareholders amended certain terms of the
shareholders' agreement. As a result of the amendment, the Company reclassified
the common shares issued by Atrium to the minority shareholders from a liability
to equity. In addition, the Company will no longer have an obligation to deliver
cash or another financial amount to the minority shareholders of Atrium.
Accordingly, in the second quarter ended June 30, 2001, the Company recognized a
dilution gain and a minority interest in Atrium.
4 SUBSEQUENT EVENT
On July 2, 2001, Atrium acquired 70% of the issued and outstanding common shares
of Unipex Finance S.A. for a total cash consideration of $21 M. Unipex Finance
S.A. is specialized in value-added services of importation, in supporting
innovation, and in distributing raw materials and high-end brand-name additives
for multinational corporations. The amount by which Atrium's purchase price will
exceed the underlying net book value of the assets and liabilities will be
approximately $12.9 M. The results of the company acquired will be included in
the consolided statement of earnings of the Company from the date of the
acquisition, July 2, 2001.
5 SEGMENT INFORMATION
QUARTERS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- ----------------------------
2001 2000 2001 2000
------------------------------- ----------------------------
$ $
(RESTATED) (RESTATED)
REVENUES
Cosmetics and nutrition $2,668,278 $ 2,022,619 $5,434,903 $ 4,037,672
Biopharmaceutical - - - -
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$2,668,278 $ 2,022,619 $5,434,903 $ 4,037,672
===================================================================================================================================
NET EARNINGS (LOSS) FOR THE PERIOD
Cosmetics and nutrition $1,134,022 $ 1,363,917 $2,552,078 $ 2,580,720
Biopharmaceutical 6,407,061 (3,024,264) 1,744,143 (6,397,924)
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$7,541,083 $(1,660,347) $4,296,221 $(3,817,204)
===================================================================================================================================